E1-1 Genesis Company performs the following accounting tasks during the year.
________Analyzing and interpreting information.
________Classifying economic events.
________Explaining uses, meaning, and limitations of data.
________Keeping a systematic chronological diary of events.
________Measuring events in dollars and cents.
________Preparing accounting reports.
________Reporting information in a standard format.
________Selecting economic activities relevant to the company.
________Summarizing economic events.
Accounting is “an information system that identifi es, records, and communicates the economic events of an organization to interested users.”
Instructions
Categorize the accounting tasks performed by Genesis as relating to either the identifi ca- tion (I), recording (R), or communication (C) aspects of accounting.
E1-2 (a) The following are users of fi nancial statements.
________Customers ________Securities and Exchange Commission ________Internal Revenue Service ________Store manager
________Labor unions ________Suppliers
________Marketing manager ________Vice president of fi nance ________Production supervisor
Instructions
Identify the users as being either external users or internal users.
(b) The following questions could be asked by an internal user or an external user.
________Can we afford to give our employees a pay raise?
________Did the company earn a satisfactory income?
________Do we need to borrow in the near future?
________How does the company’s profi tability compare to other companies?
________What does it cost us to manufacture each unit produced?
________Which product should we emphasize?
________Will the company be able to pay its short-term debts?
Instructions
Identify each of the questions as being more likely asked by an internal user or an external user.
E1-3 Angela Duffy, president of Duffy Company, has instructed Jana Barth, the head of the accounting department for Duffy Company, to report the company’s land in the com- pany’s accounting reports at its fair value of $170,000 instead of its cost of $100,000. Duffy Identify users of accounting
information.
(LO 1)
Classify the three activities of accounting.
(LO 1)
Discuss ethics and the historical cost principle.
(LO 2)
Exercises
37
says, “Showing the land at $170,000 will make our company look like a better investment when we try to attract new investors next month.”
Instructions
Explain the ethical situation involved for Jana Barth, identifying the stakeholders and the alternatives.
E1-4 The following situations involve accounting principles and assumptions.
1. Tisinai Company owns buildings that are worth substantially more than they originally cost. In an effort to provide more relevant information, Tisinai reports the buildings at fair value in its accounting reports.
2. Kingston Company includes in its accounting records only transaction data that can be expressed in terms of money.
3. Roger Holloway, owner of Roger’s Photography, records his personal living costs as expenses of the business.
Instructions
For each of the three situations, say if the accounting method used is correct or incorrect.
If correct, identify which principle or assumption supports the method used. If incorrect, identify which principle or assumption has been violated.
E1-5 Diehl Cleaners has the following balance sheet items.
Accounts payable Accounts receivable
Cash Notes payable
Equipment Salaries and wages payable
Supplies Owner’s capital
Instructions
Classify each item as an asset, liability, or owner’s equity.
E1-6 Selected transactions for Green Valley Lawn Care Company are listed below.
1. Made cash investment to start business.
2. Paid monthly rent.
3. Purchased equipment on account.
4. Billed customers for services performed.
5. Withdrew cash for owner’s personal use.
6. Received cash from customers billed in (4).
7. Incurred advertising expense on account.
8. Purchased additional equipment for cash.
9. Received cash from customers when service was performed.
Instructions
List the numbers of the above transactions and describe the effect of each transaction on assets, liabilities, and owner’s equity. For example, the fi rst answer is: (1) Increase in assets and increase in owner’s equity.
E1-7 Falske Computer Timeshare Company entered into the following transactions during May 2017.
1. Purchased computers for $20,000 from Digital Equipment on account.
2. Paid $4,000 cash for May rent on storage space.
3. Received $17,000 cash from customers for contracts billed in April.
4. Performed computer services for Viking Construction Company for $4,000 cash.
5. Paid Tri-State Power Co. $11,000 cash for energy usage in May.
6. Falske invested an additional $29,000 in the business.
7. Paid Digital Equipment for the computers purchased in (1) above.
8. Incurred advertising expense for May of $1,200 on account.
Instructions
Indicate with the appropriate letter whether each of the transactions above results in:
(a) An increase in assets and a decrease in assets.
(b) An increase in assets and an increase in owner’s equity.
(c) An increase in assets and an increase in liabilities.
Use accounting concepts.
(LO 2)
Classify accounts as assets, liabilities, and owner’s equity.
(LO 3)
Analyze the effect of transactions.
(LO 4)
Analyze the effect of transactions on assets, liabilities, and owner’s equity.
(LO 4)
(d) A decrease in assets and a decrease in owner’s equity.
(e) A decrease in assets and a decrease in liabilities.
(f) An increase in liabilities and a decrease in owner’s equity.
(g) An increase in owner’s equity and a decrease in liabilities.
E1-8 An analysis of the transactions made by Arthur Cooper & Co., a certifi ed public accounting fi rm, for the month of August is shown below. The expenses were $650 for rent,
$4,800 for salaries and wages, and $400 for utilities.
Analyze transactions and compute net income.
(LO 4)
Accounts Accounts Owner’s Owner’s
Cash 1 Receivable 1 Supplies 1 Equipment 5 Payable 1 Capital 2 Drawings 1 Revenues 2 Expenses 1. 1$15,000 1$15,000
2. 22,000 1$5,000 1$3,000 3. 2750 1$750
4. 14,600 1$3,900 1$8,500 5. 21,500 21,500
6. 22,000 2$2,000
7. 2650 2$650
8. 1450 2450
9. 24,800 24,800
10. 1400 2400
Instructions
(a) Describe each transaction that occurred for the month.
(b) Determine how much owner’s equity increased for the month.
(c) Compute the amount of net income for the month.
E1-9 An analysis of transactions for Arthur Cooper & Co. was presented in E1–8.
Instructions
Prepare an income statement and an owner’s equity statement for August and a balance sheet at August 31, 2017. Assume that August is the company’s fi rst month of business.
E1-10 Finch Company had the following assets and liabilities on the dates indicated.
December 31 Total Assets Total Liabilities
2016 $400,000 $250,000
2017 $460,000 $300,000
2018 $590,000 $400,000
Finch began business on January 1, 2016, with an investment of $100,000.
Instructions
From an analysis of the change in owner’s equity during the year, compute the net income (or loss) for:
(a) 2016, assuming Finch’s drawings were $15,000 for the year.
(b) 2017, assuming Finch made an additional investment of $45,000 and had no drawings in 2017.
(c) 2018, assuming Finch made an additional investment of $15,000 and had drawings of
$25,000 in 2018.
E1-11 Two items are omitted from each of the following summaries of balance sheet and income statement data for two proprietorships for the year 2017, Greene’s Goods and Solar Enterprises.
Greene’s Solar
Goods Enterprises
Beginning of year:
Total assets $110,000 $129,000
Total liabilities 85,000 (c)
Total owner’s equity (a) 80,000
Prepare fi nancial statements.
(LO 5)
Determine net income (or loss).
(LO 5)
Analyze fi nancial statements items.
(LO 5)
Exercises
39
End of year:
Total assets 160,000 180,000
Total liabilities 120,000 50,000
Total owner’s equity 40,000 130,000 Changes during year in owner’s equity:
Additional investment (b) 25,000
Drawings 37,000 (d)
Total revenues 220,000 100,000
Total expenses 175,000 60,000
Instructions
Determine the missing amounts.
E1-12 The following information relates to Armanda Co. for the year 2017.
Owner’s capital, January 1, 2017 $48,000 Advertising expense $ 1,800 Owner’s drawings during 2017 6,000 Rent expense 10,400 Service revenue 63,600 Utilities expense 3,100 Salaries and wages expense 29,500
Instructions
After analyzing the data, prepare an income statement and an owner’s equity statement for the year ending December 31, 2017.
E1-13 Abby Roland is the bookkeeper for Cheng Company. Abby has been trying to deter- mine the correct balance sheet for Cheng Company. Cheng’s balance sheet is shown below.
Prepare income statement and owner’s equity statement.
(LO 5)
Correct an incorrectly prepared balance sheet.
(LO 5)
Instructions
Prepare a correct balance sheet.
E1-14 Loren Satina is the sole owner of Clear View Park, a public camping ground near the Lake Mead National Recreation Area. Loren has compiled the following fi nancial information as of December 31, 2017.
Revenues during 2017—camping fees $140,000 Fair value of equipment $140,000 Revenues during 2017—general store 65,000 Notes payable 60,000 Accounts payable 11,000 Expenses during 2017 150,000
Cash on hand 23,000 Accounts receivable 17,500
Original cost of equipment 105,500 Instructions
(a) Determine Loren Satina’s net income from Clear View Park for 2017.
(b) Prepare a balance sheet for Clear View Park as of December 31, 2017.
E1-15 Presented below is fi nancial information related to the 2017 operations of Sea Legs Cruise Company.
Maintenance and repairs expense $ 95,000
Utilities expense 13,000
Salaries and wages expense 142,000
Advertising expense 24,500
Ticket revenue 410,000
Compute net income and prepare a balance sheet.
(LO 5)
Prepare an income statement.
(LO 5) CHENG COMPANY
Balance Sheet December 31, 2017
Assets Liabilities
Cash $15,000 Accounts payable $21,000
Supplies 8,000 Accounts receivable (6,500) Equipment 46,000 Owner’s capital 67,500 Owner’s drawings 13,000 Total liabilities and
Total assets $82,000 owner’s equity $82,000
Instructions
Prepare the 2017 income statement for Sea Legs Cruise Company.
E1-16 Presented below is information related to the sole proprietorship of Alice Henning, attorney.
Legal service revenue—2017 $335,000
Total expenses—2017 211,000
Assets, January 1, 2017 96,000 Liabilities, January 1, 2017 62,000 Assets, December 31, 2017 168,000 Liabilities, December 31, 2017 100,000 Drawings—2017 ? Instructions
Prepare the 2017 owner’s equity statement for Alice Henning’s legal practice.
Prepare an owner’s equity statement.
(LO 5)